Conflict between private concessionaire and public owner snags airport privatisation efforts in Greece

One of the benefits of leases, concessions, BOT and PPP deals for airports is that the government, be it national, federal or local, typically retains ownership of the asset, the private sector benefitting from the operating revenues, for which it may pay also a royalty in addition to the concession fee. An ideal scenario in many ways, and one which kick started the privatisation process in the US, where it was flagging through a series of PPP deals.

But there are pitfalls and they are evident in Greece. The concessionaire Fraport Greece, which is a consortium of Germany’s mighty Fraport and Greek energy business development company Copelouzos, signed a EUR1.2 billion contract with the Greek government in Dec-2016 to lease and manage 14 provincial airports in two equal ‘clusters’ mainly on popular tourist islands, including Corfu and Santorini, for 40 years.

The consortium will also pay an annual fixed rental fee of about EUR23 million. Actual ownership of the airports will still be retained by the Greek government throughout the concession term. Fraport Greece also undertook to invest EUR330 million by 2020, to upgrade facilities and EUR1.4 billion in total over the term of the lease.

So far so good, but just five months after the consortium took over the airports problems have arisen. As the owner, the government wants to crack on with runway reconstruction works at Thessaloniki’s Makedonia Airport in Greece’s second city, a flagship of the privatisation process as it is the busiest airport in the group with 6.4 million passengers in 2016 (+18%) and +7.9% growth in Jan-2017 to Jul-2017.

CHART – Thessaloniki’s Makedonia Airport boosted passenger traffic by a massive 18% in 2016, its second highest rate of growth this decade, and has been growing at a healthy 7.9% this yearSource: CAPA – Centre for Aviation and Greece Civil Aviation Authority

But both Fraport Greece and tourism operators, as well as the local Mayor, voiced their concerns and requested the works be postponed until a more appropriate time. Fraport complained that the works mean runway 16/34 would remain closed, while runway 10/28 has been closed for more than a decade due to extension works.

Fraport Greece’s checks on the facility in Jun-2017 indicated that the condition of the runway surface posed no risks, that the infrastructure is fit to serve the airport for 20 years and that scheduled works would not substantially improve the performance of the pavement. Moreover, closing the airport would cause “hundreds of jobs to be lost”.

Fraport Greece has asked for the works to be postponed once before. Clearly the operator does not wish to lose revenue during the peak period when the expectation is that it will continue to make investments, which include a renovated terminal and a new one.

The government retorted that it would continue with the works and that Fraport Greece “must understand that it is an airport management company… [it] is not a company that will tell the country what projects it will do and what projects it will not do”.

Fraport Greece’s response to that was an operational one – that it had carried out over 5,400 ‘interventions’ between Apr-2013 and Sep-2013 that were necessary for the operation of the airports and that there was no delay in its planning for the runway works – but also a commercial one, that the 14 airports had served 2.5 million additional passengers during that period. Fraport Greece also threw in an observation that master plans for the 14 airports had still not been approved by Greece’s Transport Ministry.

The privatisation of these airports and of a future tranche (23) of island airports as well as that of Athens Airport (which is partly privatised already by a consortium that includes Copelouzos) is bound up with Greece’s ongoing debt bailout, the terms of which demanded widespread disposal of state assets.

But it was not an easy transaction in the first instance; there was considerable political resistance, bureaucracy and opposition from trades unions. Fraport was stepping into a minefield. At least the minority partner, Copelouzos, had local knowledge and was forewarned.

For the moment there is an impasse. The dispute raises questions though about the future Greek privatisations. It also underscores the need for absolute certainty in sovereignty issues when airport are privatised, especially when a foreign company is involved. In other words, who exactly has responsibility for what?